Lockheed hits 2017 F-35 delivery target despite production hiccups

(Reuters) - Lockheed Martin Corp (LMT.N) said that it hit its 2017 target to deliver 66 F-35 fighter jets to the U.S. and its allies last week, despite production problems as the defense contractor built 40 percent more jets this year.

A Lockheed Martin F-35B fighter is seen at the Royal International Air Tattoo at Fairford, Britain July 8, 2016. REUTERS/Peter Nicholls

In September and October, the U.S. Defense Department halted shipments of F-35s for 30 days after a production error allowed corrosion to form around fasteners attaching body panels to the airframe.

It was the latest of several production issues that have arisen in the Pentagon’s most expensive weapons program.

The F-35 is key for Lockheed, accounting for about a quarter of its total revenue. During the third quarter, sales at Lockheed’s aeronautics business increased 14 percent to $4.7 billion, pulled higher by F-35 sales.

“I definitely see growth opportunities for the F-35 program and expect the program to grow much like the F-16 did, as countries look to recapitalize their fighter fleets,” said Jeff Babione, the head of Lockheed’s F-35 program.

The governments of Belgium, Finland, Germany, Spain, Switzerland, the United Arab Emirates and others have been eyeing a purchase of the stealthy jet as potential new customers.

In Canada, Liberal Prime Minister Justin Trudeau campaigned in 2015 on a promise not to buy the F-35 fighter, saying it was too expensive.

But last week, in a move that could ultimately benefit Lockheed, Trudeau’s government scrapped plans to buy 18 Boeing Co (BA.N) Super Hornets and made clear the company would not win a contract for 88 jets unless it dropped a trade challenge against Canadian planemaker Bombardier Inc (BBDb.TO).

The U.S. and its allies are negotiating an annual purchase of a batch of 141 planes. As of Friday, they had more than 265 of the jets already flying.

In order to meet its planned growth to a fleet of more than 3,000 jets worldwide, the company has hired more than 1,300 of a planned 1,800 workers at its Fort Worth, Texas factory. There are also assembly facilities in Japan run by Mitsubishi Heavy Industries (7011.T) and Italy, run by Leonardo (LDOF.MI).

The company is scheduled to deliver about 90 jets next year and the Bethesda, Maryland-based weapons maker aims to nearly triple annual production to more than 160 jets in 2023.

Lockheed shares hit an all-time high of $323.38 on Friday, capping an almost 250 percent run over the last five years and showing that investors expect steady and strong profit growth from the world’s biggest defense contractor.

PRODUCTION DELAYS

Despite the consistent growth, the F-35 has been widely criticized for being too expensive, including by U.S. President Donald Trump and other U.S. officials, who have also pointed to numerous production delays and cost overruns.

A quarter of the operating F-35 fleet was temporarily grounded this year because of problems with pilots’ oxygen supplies.

The U.S. Government Accountability Office also published a report this year detailing a shortage of spare parts that could plague the F-35 program for several years.

The supply chain is already working at peak capacity.

Lockheed, the prime contractor, and its partners, including Northrop Grumman Corp (NOC.N), United Technologies Corp’s (UTX.N) Pratt & Whitney and BAE Systems Plc (BAES.L), have been working on building a more cost-effective supply chain.